AES Tiete's (AESAY) CEO Julian Nebreda on Q4 2016 Results - Earnings Call Transcript

| About: AES Tiete (AESAY)
This article is now exclusive for PRO subscribers.

AES Tiete SA ADR (OTCPK:AESAY) Q4 2016 Earnings Conference Call March 3, 2017 9:00 AM ET


Julian Nebreda - Chief Executive Officer

Francisco Morandi - Chief Financial and Investor Relations Officer

Ítalo Tadeu Carvalho - President of AES Tietê

Ricardo Cyrino - Vice President Energy Commercialization


Kaique Vasconcellos - Citigroup

André Sampaio - Banco Santander

Vinicius Canheu - Credit Suisse

Bruno Pascon - Goldman Sachs


Good morning, ladies and gentlemen. Welcome to the conference call of the company AES Tiete Energia S.A., operated by Chorus Call Brazil. In this conference call, we are going to announce the results of the fourth quarter of 2016, for the year of 2016 for the company. AES Tiete Energia Investor Relations also informs that the press release with the earnings is already available at the company’s website at the address,

All participants are connected in listen-only mode. And later on, we are going to have a Q&A session, when instructions will be provided for you to participate. [Operator Instructions] This conference call is being recorded and is also being webcast with access through the website

On behalf of AES Tiete Energia, we would like to clarify that any statements made during this conference call relative to the business prospects, operation and financial projections, and goals of the company are mere forecasts based on current expectations. Forward looking statements may change because of variables such as the market conditions and international market.

The presentation which is going to be accompanied by a slide deck is available at the webcast. It’s going to be made by the CEO of AES Brazil, Mr. Julian Nebreda; and the VP of Investor Relations, Mr. Francisco Morandi; and by Mr. Italo Freitas, the resigning director of the company. At the end, all executive officers will be available to answer any questions you may have.

Now, I would like to turn the conference over Mr. Julian Nebreda.

Julian Nebreda

[Interpreted] Thank you very much. Good morning, everyone. Let’s begin the results conference for AES Tiete for the fourth quarter of 2016. With me here today: Italo Freitas, Chief Executive Officer of the company; Francisco Morandi, Vice President and Investor Relations Officer; Pedro Bueno, Vice President in Legal Affairs, Audit and Compliance; Ricardo Cyrino, Commercial Vice President; and Sidney Simonaggio, Vice President of Regulation; as well as other officers of the company and our Investor Relations team.

I begin the presentation with the main highlights for 2016. The first point I would like to highlight is the performance of hydrology. In 2016, inflows in the National Interconnected System troughed slightly compared to the previous year. They went from 89.4% of the long-term average in 2015 to 86.7% of the long-term average in 2016. Even so, the SIN reservoirs closed the year at 31.7%, an increase of 2.3 percentage points over the year 2015.

In relation to hydrology, in the Southeast and Centerwest market where the company’s plants are located it was possible to verify an increase in inflows that went from 84.6% in 2015 to 94.9% in 2016. Consequently, the level of the reservoirs in this submarket reflected this performance and increased by 3.9 percentage points, going from 29.8% in 2015 to 33.75% in 2016.

The positive performance is also mirrored in the average prices in the short-term market of this market, which have gone from R$287.20 a megawatt hour in 2015 to R$94.10 per megawatt hour in 2016. The decrease in the MRE recorded in 2016 was 32.2%, 2.7 percentage points lower than the one recorded in 2015 which totals 15.9%, therefore the slight worsening of the hydrology registered in the SIN in annual comparisons.

As mentioned, the lower decrease is explained mainly by the maintenance of the load and the lower thermal dispatch in the year, among other factors that will be approached by Francisco later on.

Regarding the company’s marketing strategy and energy prices, this quarter we have entered into new agreements and our contracting levels totaled 88%, 73%, 40%, 28% and 13% of our available conventional energy for the years of 2017, 2018, 2019, 2020 and 2021, respectively.

We maintain our expectation of the average price for energy sales in the long-term at 140 to 170 megawatt hour as of 2018 with a high trend. As we have already announced in our last call, we believe that hydrology below the long-term average since the beginning of the wet season in November in 2016 and review of the risk aversion parameters in price formation could pressure prices for the band above this average.

In the scope of dividend distribution, we propose a distribution of dividend totaling R$34.5 million for the fourth quarter of 2016, totaling R$400 million and a payout of approximately 112%. The proposed distribution for the fourth quarter 2016 will be submitted to the shareholders’ approval in the next general meeting.

In the new business and portfolio expansion front, we maintain the objective of diversifying our portfolios through non-hydraulic sources and in order to mitigate the hydrological risk. On this front, as announced on January 13, we have signed a binding proposal of R$650 million to acquire the Alto Serão II wind farm. This complex has an installed capacity of 383 megawatts and is already in operation.

Our team is committed to complete the stage of due diligence and the negotiations of the closing of the contract in this case. This is one of the work fronts, so that by 2020 50% of AES Tiete Energia’s EBITDA will be made up of non-hydraulic sources with regulated long-term energy purchase and sales projects.

In addition, we propose and also promote integrated energy solutions for our customers. In this, in line with this, we concluded at the beginning of the year restructuring of our new commercial platform, leveraging the successful energy-trading platform. Italo Freitas will provide more details later on.

As for the acknowledgements that we obtain, I would like to highlight the fact that AES Tiete is one of the 150 best companies to work for in Brazil according to the 2016 guide of the Você S/A Magazine. The company has been recognized as a very good opportunity in terms of careers, good leadership and quality of life. In addition, we have also integrated now the BM&FBovespa Corporate Sustainability Index for 10 consecutive years.

I now turn the floor to Francisco Morandi.

Francisco Morandi

[Interpreted] Thank you, Julian. Good morning, everyone. We’re now on Slide 3. We’ll look at the developments of the levels of the Brazilian reservoirs and the performance of the thermal dispatch.

In the first chart, you can see a gradual reduction of the SIN reservoir levels since the end of the wet season in March 2016. This reduction is associated to the lower inflow during the year 2016 compared to 2015, which totaled 86.7% of the long-term average in 2016. A reduction of 2.7 percentage points compared to 2015, when they closed with 89.4% of the MLT.

This decline is also reflected in the fourth quarter 2016, which were at 77.4% of MLT versus 116.2% in the fourth quarter of 2015.

In the chart to the right, we present the evolution of the SIN reservoirs in comparison to the volume of thermal dispatch in recent years. In this chart, you can see a drop in the level of the Brazilian reservoirs, which were sharper as of the second quarter of 2016, when they were at 53.3% [in zero] [ph] and closed December in 31.7%. Consequently, this drop was accompanied by an increase in the thermal dispatch, which increased from 10.8 average gigawatts in the second quarter of 2016 to 11.6 average gigawatts in the fourth quarter of 2016.

According to the ONS, the outlook is that hydrology will remain critical in March so that the SIN reservoirs will reach 43% of capacity at the end of the month. If the March forecast, if confirmed we will be facing the fourth worst wet season in the history until it goes from December 2106 to March 2017 with announcements of 71% of the long-term average. This perspective justifies the increase of PLD for this week and the activation of the yellow flag.

In the Slide 4, we have thermal dispatch comparison between the thermal dispatch inside and outside the order of merit we’re getting the SIN, including the inflexibility since January 2014 as well as the evolution of the PLD for the southeast in the period for the comparative process of the spot price. As highlighted in this chart, it is possible to derive the relevant increase out of the order of Merit as of May 2015 represented by the grey area in the chart.

This increase from that period to mid-2016 was mainly associated with a more conservative dispatch policy, which aim that to ensure the recovery of the reservoir levels for the dry season and reflected a lower spot price in the Southeast and Centerwestern market as you can see on the top half of the chart.

It relation to the total thermal dispatch of 2016, there is a reduction when compared to 2015, but the level of dispatch outside the order of merit remains high for reasons of energy security, and mainly associated with the low levels of reservoirs found in this submarket of the Northeast which closed 2016 with 16% of their capacity.

In addition, we believe that new pricing methodology, which will come into effect in May of this year, will tend to further reduce the variation between the dispatches in and out of the order of merit, since it will bring the amount closer to the reality of the dispatch as well as to give an adequate signal to the formation of short-term prices.

In the next slide, we have the lowering of the MRE and the load. In the chart, you can see that there is a reduction on 2.7 percentage points compared to 15.9% in 2015 as you can see in the first chart. This performance is explained by a lower thermal dispatch comparing the periods with 11.4 average gigawatts dispatched in 2016 versus 15.5 average gigawatts in 2015 as well as the maintenance of the load.

Concerning the lowering, we can see that it totaled 12.4% in the fourth quarter compared to the fourth quarter of 2015, which was 7.6% which represent an increase of 4.8%. This increase is directly related to the worsening of the hydrology a greater wind generation and the retraction of the load at 0.8% according to the second chart in the slide.

In order to mitigate the risk and the GSF and exhibition at the spot market, we have adopted the strategy of contracting only 95% of the energy available in 2016, and approximately 88% of the energy available for 2017. We have remaining a segment that is not contracted. Concerning the effects of the lowering, I would like to highlight that, because we obtained an injunction in the APINE in June that protects the company from the effects of the GSF.

And we will keep the monthly provisioning and until December 2016, the total amount provisioned concerning the injunction totaled R$315 million, which includes the principal of R$289.9 million and R$25.1 million, rest concerning the monitory update of the level according to the IGP-M rate.

On slide 6, we have energy and net revenue. In the next slide, we have what will happen in the next - in this quarter. And we have in the future reduction of the energy traded. We have an increase of billed energy according to the MRE, which was higher.

Concerning net revenue according to the second chart in this quarter, we have R$364 million, 43% less than a total we had in the fourth quarter of 2015. This reduction is because of the end of the contract with the company AES Eletropaulo on December 31, 2015. And it’s impacted the average price of sale which went from 404 megawatt hours in the fourth quarter of 2015 when 100% of our energy was contracted to AES Eletropaulo to a 151 megawatt in the fourth quarter of 2016 when our energy was sold industry and regulated markets.

And we adopted a strategy of leaving some part of it uncontracted. The main impact that has a result on a 41% reduction of the net revenue from 2016 compared to 2015, in the comparison of the annual average price of sale of energy went from 198 in 2015 and a 100 to 147 megawatt hour in 2016.

On slide 6, we have cost and operational expenses in the quarterly comparison. In the quarter of 2016, we had operational expenses totaling R$194 million, a reduction of 19% compared to the fourth quarter of 2015. This decrease is related to the lower volume of energy bought from the short-term market associated to the drop in the average stock price in the period.

In the PMSO line, we can see there was an increase of 9%, totally R$84 million in the fourth quarter of 2016. And this was associated mainly to the payment of R$28 million as a result of an agreement in an arbitration and an increase in the personnel lines, resulting from the restructuring for the company and the creation of the new commercial platform.

Concerning cost and operational expenses, we totaled R$759 million, which represented a reduction of 39% as a result of the lower volume and the price of energy in the short-term market. Concerning the PMSO, we have an increase in R$20 million compared to 2015 due to the arbitration procedure I have just recently mentioned.

On Slide 8, you have the result for the EBITDA and net income for the company. EBITDA totaled R$169 million which was 57% lower than the same period in 2015 as a result of the new average price of the sales portfolio of the company which went from 204 megawatt hour in the fourth quarter of 2015 to around 151 megawatt hour in the fourth quarter of 2016. And the reduction of cost with the purchase of energy associated to a lower PLD in the period.

We had a reduction in EBITDA of 42% because of the same factors. Net income totaled R$83 million in the fourth quarter of 2016 compared to R$266 million reported in the fourth quarter of 2015. Therefore, we have net income at R$359 million in 2016, 51% lower than the R$739 million in 2015.

In the distribution of dividends, as we have mentioned, the company proposed a distribution to payout totally R$34.5 million for the fourth quarter of 2015 which will be submitted to shareholder’s approval at the general meeting which will probably take place until April 28, 2017. If the approval comes, 2016 will have distribution of dividends totaling R$400 million and payout of around 112%.

The investments in the fourth quarter of 2016, this illustrated in Slide #9 have totaled R$32 million, a reduction of 49% when compared to the amount invested in the fourth quarter of 2016, which was R$62 million. In 2016, the company invested R$101 million, an amount that is 40% greater than the amount invested in 2015, which was R$168 million.

Of those about R$81 million were allocated to the modernization and preventive maintenance of the power plant in Água Vermelha then the construction of the new center for the operations, generation and gate known as COGE then the near basis for AES Tiete operations. And it’s going to be highly commended only the COGE that has took R$21 million invested in 2016.

I’d also like to highlight the program of investments for the cycle 2017, 2021 totaling R$399.6 million focusing on modernizing our power plants to assure the availability of our generation complex aiming at a continuing improvement of our operational conditions. On Slide #10, you can see the cash flow in the quarter, and R$274 million in the quarter, a reduction of R$134 million, as a reduction and a consequence of our new contracting portfolio.

The free cash flow was positive by R$208 million in Q4 2016, an amount that is R$109 million lower than that of the fourth quarter of 2016, especially because of the reduction in the cash operational reduction as mentioned before, which was partially offset by the drop of R$12 million investments, if we compare the two periods in 2016, the free cash flow was positive by R$606 million and amount that is R$138 million greater than that of 2015.

This performance is due first to the reduction of the net amortization of R$264 million, and the reduction of the settlements of 2015, partially offset by the reduction in cash operational generation of about R$77 million, as a result of the end of the contract with AES Eletropaulo on December 31, 2015, and greater expenses with income tax by R$127 million in 2016, which is greater than the result of 2015 that was greater than 2014. As a result, our final cash balance is R$577 million in 2016 as compared to R$739 million in 2015.

On the next slide, we are going to talk about the company’s indebtedness. Our level of leverage at the end of the fourth quarter is 1.1 times net debt for adjusted EBITDA, and we should highlight the company does not have FX exposure in its debt and it is concentrated between CDI and IPCA, as a result of our infrastructure debentures.

Our gross debt totaled R$1.4 billion in December 31, 2016, 3.9% greater than our gross debt position in the same date of 2015. This variation is associated to the fifth issuance of debentures of November 15, 2016 amounting to R$180 million, which was added to the settlement of the first series of fourth issuance of debentures on the December 15, 2016 with amortization amounting to R$144 million as availability at the end of 2016 they totaled R$578 million an amount that is R$169 million lower on that of the end of 2015.

The schedule of debt amortization in 2016 was R$232 million will be amortized, especially regarding the amortization of the first installment of the second series of the fourth emission [ph]. And the first share of the second emission from 18 to 23 in the forecast for debt amortization considering amortization or the principal amount accumulated interest and differed balance. It totals R$1.2 billion.

As it is possible to note Tiete has a low level of leverage which makes it possible to grow and make the company grow through the issuance of new debts today, considering our leverage capacity and the acquisition of Alto Serão II by R$650 million which is going to mean a debt of R$1.1 million and the agreements of December 30, 2016 as presented by renewable and additional capacities R$1.5 billion if we assume the limits debt of our covenants.

Now, I’d like to turn the conference over to Ítalo who is going to continue the presentation, and will be talking a little bit about the evolution of our customer portfolio and the company’s pro strategy.

Ítalo Tadeu Carvalho

[Interpreted] Thank you, Francisco. Good morning, everyone. I’m going to start my presentations on Slide 12. Speaking a little bit about the evolution of our customer portfolio, we continue focusing on selling energy generated by our power plants. As a result, during the fourth quarter of 2016, we closed new contracts which made it possible for us to reach for 2019 to 2021 a level of contracting of our energy of 40%, 28% and 13% respectively.

As a strategy, we leave part of our energy uncontracted for the use of 2016 and 2017 with the aim of having some flexibility considering the uncertainties of the current scenario of hydrology. This decision to set aside a share of our own energy is a more conservative position in order to mitigate possible resold [ph] market exposure in the short-term because of a lowering of the ERM. In that manner we may say that this share that is not contracted worked in the natural hedge consider the uncertainties in terms of hydrology load and thermal dispatch factors which are determining for GSF expectation.

We should remind you that along 2016 we have started discussions about the need to adjust the parameters of risk aversion that we adopted in our pricing models. These discussions have led to the change of CVaR parameter which will be adopted end of May, 2017. This change is important for the spot price to reflect more precisely the reality of the National Interconnected System.

We keep our expectation average price for the sale of energy in the long-term between 140MWh and 170MWh after 2016. However, the uncertainty there is to rainfall. And our risk aversion parameters as is mentioned before may put pressure on the top bend of this bridge. I would also like to say that average prices for 2016 of R$157 per megawatt hour are adjusted by inflation for comparison purposes with a date base of December 2016. As a reminder, almost all our contractor annually adjusted by the inflation at the beginning of each year.

Now, going to Slide #13, you’re going to see the new energy solutions that we are providing to our customers. We have positioned the Brazilian energy industry is already going through a profound transformation. We believe that additional modeling which the energy chain is uni-direction will give place to an energy metric that is centered to customer needs that today may even generate their own energy in the very site where they consume energy.

In this manner we believe that these changes in our industry have a potential of creating value for Tiete Energia, because new business models will emerge and will transform the industry as we know it today. We’re already working for the company to be prepared to take advantage of this new reality.

Coming also to our vision of being recognized by our customers and shareholders as the main partner in innovative energy solutions in a safe, sustainable and reliable and accessible manner. In this manner, we have launched in 2016 a new commercial platform that is more integrated with three main lines.

First is market intelligence. At the end of 2016, we created a new department as the company focusing on extending better our customers and competitors, so that Tietê Energia may improve this market positioning in terms of new solution.

The second and the third lines are interconnected. The creation of new business model that will enable the expansion of our portfolio, which means the expansion of products and energy sources was provided by the advantages to our customers, with a special focus on non-hydraulic energy sources, and new energy sources such as distributed generation, and energy storage.

We also understand that extending [ph] services such as energy efficiency and integration of solutions. I’d like to highlight that all these fronts will be based on the assumption of more closes with our customers. This will be our role as an innovative company in our industry with customized proposes to deliver a custom-made energy solutions.

Our products go from the traditional sale of energy on the new energies such as solar distributed generate - cogeneration, and storage of energy through batteries. Along design is part of our development for our integrated commercial platform, we have started our activities for distributed generation. Today, we really have three contracts, so their volumes not yet material, but our intension is to be well positioned to take the opportunities thus far emerging in the market.

Now, I’d like to talk about opportunities and how we are using that. We’re committed through the strategy of growth and diversification of the company, which consistent in the expansion of our installed capacity through non-hydraulics of especially wind and solar in long-term contracts. And this mainly are aligned with our main goal of having 50% of EBITDA with non-hydraulic energy sources, we are seeking attractive opportunities in the market that may contribute towards our goal.

In this manner, we announced in January this year, the binding proposal for the acquisition of the Wind Complex Alto Sertão II, located in the State of Bahia, with installed capacity of 386 megawatts, and energy contracted for 20 years through new energy auctions. We are currently completing our due diligence process, and the contract negotiations for the purchase and sale of this asset.

As to other opportunities is centralized with the solar energy, we are analyzing other solar and wind portfolios available in the market. And they are also developing the solar complex to 150 megawatt in the state of São Paulo, close to our power plant of Agua Vermelha.

As we said before, another important front is distributed generation. In our vision electric energy consumers will have more efficient power over the energy they consume, thereby leading distributed generation to advance very fast and gaining share in electrical industry. You believe the distributed energy will bring significant changes to the Brazilian energy industry, and then we are working more and more to be a relevant acquisition in this market of 1.2 gigawatt.

Last, we should not say or to mention our effort in developing a new market, which is very much at the beginning, but it’s very much promising, which is called enormous energy storage. [AES Sport] [ph] is a world leader in energy storage, and in Brazil AES Tietê Energia is the pioneer in offering the solution to the market with possibility of tender application. Some of the most promising for Brazil are regarding optimization of costs with integration of intermittent renewable sources and generation at the end and deferral and optimization adjustment in transmission and distribution lines. In this manner we have development - developed in our Bariri power plant a pilot project with capacity of 200 kilowatt.

In Lithium-Ion batteries and this will be the first project to integrate the hydraulic power plants to system of batteries to store generation this year. This project will make it possible for Brazil to become part in the global map of energy storage.

Thank you very much. Now I’d like to turn the conference back over to Mr. Nebreda.

Julian Nebreda

[Interpreted] So 2016 as you can see was still influenced by the reduction in inflow, reinforcing our expectation of a high in average prices in the energy market. In this manner, our expectation for prices for new contracts in the upper limit of the range 140 to 170 megawatts hour. As we’ve mentioned in the first slide, we will also like to highlight the maintenance of the company’s payout of 100% considering the distribution of dividend and interest on equity of R$400 million indicate [ph].

With regard to the company’s growth strategy, we highlight the main growth front that AES Tiete has been focusing on. And the proposal for the binding - the binding proposal for the acquisition of Alto Serão II and our work fronts to reach our goal by 2020 to have about 50% of the company’s EBITDA from non-hydraulic sources in long-term contract.

Finally, as a result of the company’s initiatives of optimizing the internal management, we were recognized as one on the top 150 best companies to work in Brazil by the 2016 guide of the magazine Você S/A. And we have integrated for the tenth year in a row of the Corporate Sustainability Index ISE in Brazil.

Thank you all very much. Now, we’re going to start our Q&A session.

Question-and-Answer Session


Ladies and gentlemen, we are now going to start our Q&A session. [Operator Instructions] Our first question comes through the webcast from [Luis Roberto Marcondes Gemade from Aslohonda] [ph].

Unidentified Analyst

[Interpreted] Have you really defined the amount of dividends and date of payments?

Francisco Morandi

[Interpreted] Thank you, Luis Roberto for your question. This is Francisco Morandi. As I have mentioned during my speech, we are proposing a distribution of R$34.5 million for the fourth quarter of 2016, which corresponds to 0.008 per unit, per share. And this will be submitted to the approval of the shareholders, which is expected to take place until April 28, 2017. And if we consider that this approval is done, we’ll see that this will total for 2016 a dividend payout totaling R$400 million mirroring around 112% payout.


The next question comes from Kaique Vasconcellos from the Citigroup.

Kaique Vasconcellos

[Interpreted] Good morning, everyone. Concerning the strategy of the group, concerning the assets AES of Renova, which is non-hydraulic for 2020, how do you see the opportunities in the market? Can we expect more movements this year? And is the focus will be on operations or even in projects that are already ongoing, operations or projects that are in their final stages? That’s my question.

Ítalo Tadeu Carvalho

[Interpreted] Thank you, Kaique. This is Italo. We can see very good opportunities. We are seeing, as we have said during the speech both in terms of solar power and wind power, and there are some which are ongoing, some of them already operating for some time. But it’s worth noting that our goal is to seek for opportunities, for good opportunities, where we can find that the company has a long-term PPA or the asset has a long-term PPA and that is non-hydraulic, in order to compose the EBITDA portfolio 40% 2020. Thank you.


The next question comes from André Sampaio, Santander.

André Sampaio

[Interpreted] Good morning. This is a quick question about GSF expectations for 2017.

Ricardo Cyrino

[Interpreted] Good morning, André. This is Ricardo Cyrino. We don’t have a GSF-guidance, but the CCEE disclosed yesterday a forecast that lowered about 16%. We think this is pretty high. And the criteria that CCEE uses is a very poor hydrology. It’s a hydrology of an average of 74%, which would be one of the worst in the history since 1931. This is the information we have from the CCEE, André.

But the best message is that our view from GSF are levels of contracting. We’ve been - we’re contracted, and therefore our GSF will be closer to the differential I believe. So everyone is a bit surprised, because of the rainfall, especially in the months of January and February, let’s see what happens in March. This is not a market-guidance. This is our view. We’re still going and following this up quarter by quarter.


Next question [Everson Marigini from JSL Marigini Malosani] [ph].

Unidentified Analyst

[Interpreted] Good morning, everyone. Concerning Kaique’s question on new businesses, can you see whether 2020 in terms of EBITDA will be close to R$1.6 billion that in line with your expectations with wind energy, totaling 50%?

Julian Nebreda

[Interpreted] Thank you, Everson. I think this 50% in our EBITDA due to non-hydraulic sources would be a reference for - in order to diversify our portfolio. Depending on the sources that are added in addition to the acquisition of Renova of the assets of Alto Sertão II, we may have other acquisition processes. And this may change depending on the capacity factors and on the assets.

So this is a long-term aim and it is aligned with our risk diversifying strategy and according also to the contracts we have. This adding to what Francisco said, with this new business platform, 50% of the EBITDA is not only based on major projects or wind and solar plant, but also this mirrors services across our relation to the private market with energy solutions that are considered full tough. And this is a consolidation and a combination that will lead to the 50%.


Our next question comes from Mr. Vinicius Canheu from Credit Suisse.

Vinicius Canheu

[Interpreted] Hi, good morning, everyone. You’ve been saying since last quarter when you made the presentation at the end of the year that you are discussing GSF agreements for the free market. Could you give us any details about the type of agreement you were trying to make - should we expect any adjustments of GSF of the order of merit, anything related to the path, any future hedges? Could you give us some more color on that?

Julian Nebreda

[Interpreted] Well, the negotiations are ongoing. I have some preliminary information. What I can say is the following. This is a very important theme for us, GSF, for all companies. To us it is very important. And today we are thinking about the future, we wanted to solve the future in it, which is much more important than solving the past. This is the way we are approaching it.

This is our general way of talking about it. It is our priority. We are working with other groups in our industry and we are trying to have this type of agreement, just of some theme such as generation, generation out of the order of merit.

And we need to find agreements within the limit that we have that are both by the law that limit the solutions that we can put in practice. But the core message is that we are working, there is a team dedicated to that. We are analyzing the offers and we want to find a solution promptly.

Vinicius Canheu

[Interpreted] Okay. Thank you very much.


Our next question comes from Victor Hugo Menezes from Goldman Sachs.

Bruno Pascon

[Interpreted] Good morning. This is Bruno Pascon. With the gas project, the government of the state of São Paulo is expected to complete by the half of this year the complex related to that, partnership that they have, and there is also another project of partnership we have in mind with Tiete, which is part of the modeling discussion that would start right after this project.

In my understanding if this project goes ahead, shouldn’t it be ready by 2020 and it would be out of the scope of the 50% plan? So how are you thinking in terms of gas, in terms of natural gas in consumption center such as São Paulo that Tiete already operates? Is there any - do you have any additional information about this initiative?

Ítalo Tadeu Carvalho

[Interpreted] Hi, Bruno. Thank you for question. The projects are going on in addition to the investors you have mentioned, we have Termo São Paulo, which belongs to the state of São Paulo. And we are working on finalizing the licenses for Pedreira in Perocheinga [ph]. And also we are also taking in ParaEB [ph] project on the coast of the state. And these projects are being developed as an option for Tiete.

And this option is so soon as - we’ll solve both the sides of the gas. And the offer of thermoelectric power plant in terms of energy, we will have the possibility of having this project ready on the shelf for us to take it from the shelf and put in the auction that might be in the future.

There are many challenges that the government is proposing for us to solve, especially with regards to gas. So that may happen, the first step that may help us to solve this point of gas. And also the issue of demand of the electric industries which is still going to go through many changes until the possibility of having a gas power plant is available and connected into the system.

Bruno Pascon

[Interpreted] Thank you much, Ítalo.


[Operator Instructions] Our next question comes from Mr. Sampaio from Santander.

André Sampaio

[Interpreted] The prices of the contracts that you have closed on the fourth quarter, they were closer to which level of the range, closer to 140 or 170, can you tell us?

Julian Nebreda

[Interpreted] It’s in the middle, 165.

André Sampaio

[Interpreted] Thank you very much. Thank you.


[Operator Instructions] If there are no further questions, I would like to turn the floor back to Mr. Nebreda for his closing remarks.

Julian Nebreda

[Interpreted] Thank you all very much. I would like to thank you all once again for your participation in our earnings release conference call. We are all here available to you if you have any other questions. Thank you and have a good day.


The conference call of AES Tiete Energia has now ended. We thank you all for your participation. And have a good day. Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!